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TRIP earnings call for the period ending September 30, 2017.

Contents:

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

Good day ladies and gentleman, and welcome to TripAdvisor's third-quarter 2017 earnings conference call. As a reminder, today's conference call is being recorded. At this time, I would like to turn the conference call over to TripAdvisor's vice president of investor relations, Mr. Will Lyons. Please go ahead.

Will Lyons -- Vice President of Investor Relations

Thanks, Sonia. Good morning everyone, and welcome to our third-quarter earnings conference call. Joining me today are Steve Kaufer, our CEO, and Ernst Teunissen, our CFO. Last night, after market closed, we distributed and filed our Q3 earnings release. We filed our 10-Q. We made available our prepared remarks on our investor relations website located at ir.tripadvisor.com. In the release, you'll find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call.

You'll also find supplemental financial information which includes certain non-GAAP financial measures discussed on this call, as well as other performance metrics. Before we begin, I'd like to remind you that this call may contain estimates and other forward-looking statements that represent the company's view as of today, November 7, 2017. TripAdvisor disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to our earnings release and our filings with the FCC for information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements. With that, I will pass this call over to Steve.

Stephen Kaufer -- Chief Executive Officer

Thank you, Will. good morning, everyone, and thank you for joining our call. As we discussed in our prepared remarks last night, we continue to make progress in our long-term growth initiatives into building more durable direct relationships with hotel shoppers on our platform. Reallocating marketing dollars to brand-building channels has contributed to softer topline results, but we believe this is in the -- this is the best path toward driving profitable revenue growth over the long term. In nine hotels, strong momentum continues, particularly in attractions and restaurants, products that deepen traveler engagement with our platform. We are investing to further broaden our marketplace to grow bookable supply and to improve the product experience. Helping more travelers throughout more moments of every trip. In both segments, we have a lot more work to do, but we play the long game and remain focused on building for the long term. Ernst?

Ernst Teunissen -- Chief Financial Officer

Thanks, Steve, and good morning everyone. Reigniting our near-term hotel revenue growth has proven more challenging than we expected this quarter ends this year. But, our product and marketing initiatives continue to deliver early positive signs, and we're optimizing our marketing mix for maximum long-term benefit. Our tele-advertising investment was the primary driver of Q3 operating expense growth year-over-year, but prudent expense management, as well as continued strength in her non-hotel segment, has enabled us to maintain our 2017 adjusted EBITDA expectations. Across our business, we will continue to strike an appropriate balance between growth and profitability as we aim for long-term shareholder value creation. We'll open it up for your call -- for your questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press star, then one on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the pound key. To prevent any backward noise, we ask that you please place your line on mute once your question has been stated. We will limit callers to one question and one follow-up question. Any additional questions, please reenter the queue. Our first question comes from Lloyd Walmsley at Deutsche Bank. Your line is now open.

Lloyd Walmsley -- Deutsche Bank Securities, Inc.

Thanks for taking the question. Two if I can. First, you know, in the prepared remarks, you guys have said hotel shopper growth is flattish in October. Just wondering if mobile continues to hover around, say, the mid-20's range. It would imply desktop shopper growth falling double digits into October. Is that the right way to think about it? Then, second one, on the non-hotel side, can you give us some color on the cost structure to the business here relative, maybe, to the core business? Is it more advertising intensive, historically? We ask because obviously, you're seeing a nice margin expansion. Some of it's driven by declining optics year over year, so we're trying to get a sense for what the cost structure looks like. Where it may have bottomed out such that feature EBITDA will be more driven by topline growth on that side. Thanks.

Ernst Teunissen -- Chief Financial Officer

Hi Lloyd, good morning. The mobile question, yes, we did see deceleration actually, throughout Q3 and in October, we saw flattish overall shopper growth. It is a continuation of relative outperformance of mobile shopper growth, and underperformance of desktop shopper growth. That's a trend that continues and is underlying that overall trend. In terms of your second question, and cost structure between hotel and non-hotel, what we see is that the cost structure is quite comparable in terms of sales and marketing, tech and content, and general admin in terms of structure of the P&L. Not that much different. What we've seen this year is scale benefits in the non-hotel business. We're growing. We are particularly growing faster our TripAdvisor platforms for attractions, for instance. But, also for vacation rentals. Which has allowed us to be more efficient with our marketing spend this year compared to other years. Its overall scale benefits actually that is driving most of the margin expansion in that segment this year.

Lloyd Walmsley -- Deutsche Bank Securities, Inc.

Okay. Thank you.

Operator

Thank you. Our next question comes from Kevin Kopelman of Cowen and Company. Your line is now open.

Kevin Kopelman -- Cowen & Co. LLC

Oh, hi. Thanks, and good morning. Can you give us -- you gave a lot of really good color on the transaction-based -- quick-based and transaction-based revenue. Can you give us more color on what Q4 or the full year is looking like for non-hotel and perhaps some of the other hotel lines to get to that full-year revenue, new revenue [inaudible] [00:07:18] low single-digits growth? Thanks.

Ernst Teunissen -- Chief Financial Officer

Yes, hi Kevin. The other lines see a continuation of trends, more or less. The non-hotel sees, into Q4, very similar growth trends, as we've seen throughout the year. Earlier in the year, we said we would expect similar growth in '17 as we did in '16. That still holds. Not much movement in other lines from Q3 to Q4 in terms of relative growth rate. It's related click-based and transaction that's the big change, the big difference.

Kevin Kopelman -- Cowen & Co. LLC

Okay. Thanks. Then, just one follow up on that. It looks like a very easy comp in, I think, other hotel revenue. Is that, in fact, an easy comp, or what does that look like?

Ernst Teunissen -- Chief Financial Officer

We've seen in the other hotel revenue, we've seen deceleration, negative growth rates in the first half. We're happy to see that turnaround in Q3 again. And, the trend into Q4 is likely not to be too dissimilar from Q3.

Kevin Kopelman -- Cowen & Co. LLC

Okay. Thanks. Then, just one final big-picture question. As you plan out, as you plan for 2018, how are you -- what are you balancing as you figure out what an appropriate level of growth and profit is, and how should we be thinking about it?

Ernst Teunissen -- Chief Financial Officer

Yes. As we think about 2018, clearly on the top line side, as we highlighted in our prepared remarks, we'll enter 2018 with the headwinds that we've seen on the top line in our core auction that we have described. That will be a headwind moving into the new year. [Inaudible] [Extraneous noise, static] [00:09:09] continue to think about our marketing budget as an increase of TV spend, but a gradual increase of TV spend is next year. But, a reallocation of less efficient paid marketing spend as well. So, all in all, we're going to balance the two, the two aspects of our marketing mix. Then, overall, we'll take a very prudent look at our other expenses as well in the hotel segment. In non-hotel, we expect continued progress both on top and bottom. We'll continue to grow that business as we have over the last quarters and years.

Kevin Kopelman -- Cowen & Co. LLC

Thanks, Ernst.

Operator

Thank you. Our next question comes from Deepak Mathivanan, of Barclays. Your line is now open.

Deepak Mathivanan -- Barclays Capital, Inc.

Hey guys, thanks for taking the question. Two questions for me. First, mobile monetization continues to improve. I think it's up 4% this quarter, while desktop as well, there's been a sharp decline. Can you elaborate the trends that's driving mobile versus desktop monetization? Particularly, considering the partners spend adjustments. Then, second one, just to elaborate a little bit, maybe you can elaborate a little bit on the marketing budget. In order that you pull back from certain less efficient channels, how should we think about the scope of that going forward into 2018? Perhaps you can maybe call out what specific channels those are as well. Thanks a lot.

Ernst Teunissen -- Chief Financial Officer

Yes. Hi, Deepak. To start with, the mobile monetization, in the, again year on year RPS growth on mobile monetization. The bid downs, the partner bid downs did have an impact on mobile as well. But, we were still able to grow revenue for shopper year-over-year. And, the cause of that is continued focus from our product teams on mobile and mobile monetization. It's been a big push for us in parallel to all the other initiatives that we have going on. Particularly, on mobile web, we see very impressive winds. As you know, in Q2, we kicked off [inaudible] [extraneous noise, static] [00:11:26], which was across desktop and mobile, and we were happy to have seen very nice winds on the mobile side. On the marketing budget and how we have seen it evolve, can you restate the question? I don't have the full question.

Deepak Mathivanan -- Barclays Capital, Inc.

Yeah. Sure. I was trying to figure out what channels you have pulled back, and how should we think about the scope of the program going forward in 2018. I know you called out certain less efficient channels. I was wondering if it's SCM related or retargeting, or a combination of both.

Ernst Teunissen -- Chief Financial Officer

Yes. Thank you. Thanks for specifying. It's across a number of different channels, so it's not a specific channel that we've identified. We've become a little bit more sophisticated in the attribution of our different channels to the downstream booking. We have, as you know, managed a whole portfolio of performance-based marketing, more or less to break even. But, if you dig deeper, there are some less efficient spend across multiple channels. So, we've been pulling back on that versus what we had planned initially in the year. Which is a further impact on our revenue growth. We do believe there is more scope for efficiency optimization in our paid marketing. We continue to do that -- we are continuing to do that in Q4; and going into the next year, we do see further scope for more efficiency on that, on the performance-based channel.

Deepak Mathivanan -- Barclays Capital, Inc.

Alright. Thanks, Ernst.

Operator

Thank you. our next question comes from Naved Khan, of SunTrust Robinson Humphrey. Your line is now open.

Naved Khan -- SunTrust Robinson Humphrey

Yeah. Thank you very much. I had a couple of questions. This one is to clarify this, the fact that you've pulled back on some of the performance add channels. Is that having a more pronounced effect on desktop traffic versus mobile? Then, I had a follow-up.

Ernst Teunissen -- Chief Financial Officer

Yes. Hi Naved, good morning. It indeed has had a disproportionate effect on desktop. Our ability to spend on performance-based marketing is a direct function of the revenue per shopper that we can achieve. As we discussed, we saw pressure on revenue per shopper in desktop. But, we were able to increase revenue per shopper on mobile. So, the relative impact has been more significant on desktop.

Naved Khan -- SunTrust Robinson Humphrey

Okay. Then, just on the -- can you comment on the dynamics between the fact that your partners might be looking for higher ROI, or they might have moved their ROI targets when they advertise with you. At the same time, you have -- you are able to improve some of the monetization on mobile hotel shopper. What's the interplay between the two in terms of when advertisers are bidding with different targets, and when you are also solving for increased monetization?

Ernst Teunissen -- Chief Financial Officer

Yeah. Being able to improve monetization is, of course, a plus. It allows us to lean into paid marketing, be more competitive, either on Google or with retargeting. So, despite partner bid downs, are improvements there allow us to expand marketplace spend on mobile.

Naved Khan -- SunTrust Robinson Humphrey

Thank you.

Operator

Thank you. Our next question comes from Mark May at Citi. Your line is now open.

Mark A. May -- Citigroup Global Markets, Inc.

Thank you. In terms of -- sorry if these have been addressed already, but in terms of the advertiser bid downs, are there any signs of source stability there? Or, are there potential for those to keep adjusting? Then, will the decrease in revenue per shopper in any way impact your thinking about your marketing plans and increase in marketing spend, including TV going forward? Thanks.

Stephen Kaufer -- Chief Executive Officer

Hi, Mark. Good morning, this is Steve. With regard to the bid downs, we've run this auction for so many years. There is always a fair amount of volatility month to month, or quarter to quarter. In this particular case, I've seen -- I think you seen some of our partners comment on increasing marketing efficiency. You know, they don't seem to be publicly commenting on the ever-declining direction, but rather they've tightened their efficiency to afford to do some other things. Which, presumably makes sense from a [inaudible] [audio cuts out] [00:16:27]. So, as we have always done, we take into the new landscape and we forecast our future plans based upon the status quo of the current bid levels.

Ernst Teunissen -- Chief Financial Officer

To your second question, Mark, revenue per shopper and the impact on marketing, broadly defined -- a few of the things I would like to highlight. So, our revenue per shopper year on year was -11%. We bid separately for traffic on desktop and on mobile. The total was down 11%. Mobile RPS was up. Desktop was down, but actually less down than the 11%. So, the 11%, is to a significant degree, also driven by the mix shift between the lower monetizing mobile traffic. So, in the meantime, we are improving our products quite significantly. One of the things that we called out is that if we look at the, in the quarter, the year on year performance of the, just the value, the underlying leads bring that we provide to our partners, that has been improving. So, the decline that we've seen on desktop revenue per shopper has been largely driven by these partner bid downs.

So, while these partner bid downs have happened, we've also made significant strides in positive development. As we think about our marketing budget, the performance-based marketing budgets, and to some extent the TV budget as well, as we look at ROAS, ROAS is going to be impacted by our projections for revenue per shopper. So, and our projections for revenue per shopper are a function of what we expect the external environment does. Obviously, how our partners behave, but also what we believe we can improve over time in terms of the underlying economic value of our shoppers.

Mark A. May -- Citigroup Global Markets, Inc.

Thank you.

Operator

Thank you. Our next question comes from Mike Olson of Piper Jaffray. Your line is now open.

Mike J. Olson -- Piper Jaffray & Co.

Hey, good morning. I have a fairly high-level question. I think parts of this, really, have been asked already in different ways. It may be hard for you to say, what do you think changed in how your major advertising partners are thinking about the meta-search channel as a source of traffic. Did the ROI, or conversion of the traffic that meta provides worsen? Or, is it that their ROI thresholds are higher than they were in the past? Then, [inaudible] [audio cuts out] [00:00:19:01] channel sources, finding ways to deliver higher converting traffic. What could alter that trend? Thanks.

Stephen Kaufer -- Chief Executive Officer

Sure, Mike, thanks. This is Steve. I would not love all of our partners into the ones that have -- that are currently looking for a higher ROI and the partners that I have had the chance to speak to are all quite appreciative and interested in buying more and more traffic on the part of TripAdvisor. I think we are an excellent partner for our hotel and OTA clients. We provide a very flexible bid mechanism, a flexible downstream conversion funnel for them. When we are able to measure the quality of the clicks that we send down to our partners, they have become more effective. In other words, they convert better than they did before.

That's direct work on our side to better qualify the traveler to be ready to book this hotel before we send them downstream to a hotel or an OTA. So, we're kind of doing all the things that we can on our side to make ourselves a better partner. I don't detect any reluctance on the part of partner hotels or OTA's to invest in the meta-channel in general. So, again, you should, of course, be asking them when it comes to the overall health of meta as a channel. It still serves a very important function for travelers and OTA's and hotels still recognize that it's a very important channel for them to tap into the type of demand that we bring to the table.

Mike J. Olson -- Piper Jaffray & Co.

Thank you.

Operator

Thank you. Our next question comes from Justin Patterson of Raymond James. Your line is now open.

Justin T. Patterson -- Raymond James & Associates, Inc.

Great. Thank you very much. In the prepared remarks, you mentioned that hotel segment expenses were effectively flat, x TV advertising. How do you think about the trade-off between revenue, growth, and profitability? Do you worry that you're underinvesting in tech and content and perhaps slowing the rate of innovation? Then, secondly, on vacation rentals, the OTA's are stepping up their investment, and Airbnb continues to execute well. How does that shape your strategy in this segment going forward? Why not apply a meta-model to the vacation rental, and potentially capture some of that advertising budget of the OTA's and Airbnb? Thanks.

Ernst Teunissen -- Chief Financial Officer

Thanks, Justin. This is Ernst. Indeed, we, the year on year in the third quarter, our expenses in hotel were flat. Other than for the additional TV expenditure. We're striking a balance, we're striking a balance between, on the one hand, investing for growth. On the other hand, adjust to the headwinds that we are encountering. So, we are actively striking that balance between revenue growth and EBITDA. We don't believe we are under-invested, under-investing in tech and content.

If you look at what we've been doing over the last year, we've made some substantial investments in the product. Both on desktop, and on mobile. On desktop and mobile, to get ready for our brand campaign and our focus on price comparison as a key value proposition for our users. On mobile, just to make sure that we keep improving that monetization. So, we believe we have an appropriate level of investment there. And, we're balancing future expense growth against our bottom-line objectives as well.

Stephen Kaufer -- Chief Executive Officer

This is Steve. I'll take the second question on vacation rentals. So, from our perspective, we are really aiming to make sure that alternative lodging categories are represented on TripAdvisor. So, we have about 800,000 properties. That's a pretty darn good mix. Having said that, of course, we are open to change as well. We'd love to have even more than that, and more different types available globally. To the question of, you know, why not a meta, I'm not sure that consumers are looking for the price comparison feature within a particular property more than the ability to find the widest range of properties. That's why we do continue to grow our supply while making sure that everything that's on our site is of high quality. Again, I think it's fair to say that it's important for our travelers. It doesn't have to be -- and we are making no claims that we will become bigger than some of the other guys. But, it does aide, clearly, our travelers' desire to have that alternative lodging choice on our site.

Justin T. Patterson -- Raymond James & Associates, Inc.

Got it. Thank you, Ernst. Thank you, Steve.

Operator

Thank you. Our next question comes from Jed Kelly of Oppenheimer. Your line is now open.

Jed Kelly -- Oppenheimer & Co., Inc.

Great. Thanks for taking my question. Can you talk to some of the engagement trends that you believe are benefiting from television advertising in terms of customer data such as store credit cards, or repeat hotel shopper trends?

Stephen Kaufer -- Chief Executive Officer

Sure. This is Steve. I mean, the best things we see from the TV ad relate to how many people are searching for TripAdvisor. When they come to TripAdvisor, how we see their behavior being more what we're looking for than our on-average customer. So, when they come and they've seen the TV ad, they're more likely to book. They're more likely to go through the hotel shopping experience and actually consummate the transaction, either on TripAdvisor or downstream on our client's sites.

So, the goal, to remind folks about the TV, was really to present TripAdvisor is a place where not only can you read reviews, but you can do your price comparison research and understand how TripAdvisor can save you money. Not, to the specifics of your question, to help us generate more instant bookings whereby we might be able to have a credit card. But, to really change the perception. I couldn't honestly tell you right now whether we are generating more and saved credit cards or something like that from the TV campaign because it really wasn't the target of our branding exercise.

Jed Kelly -- Oppenheimer & Co., Inc.

Thank you.

Operator

Thank you. Our next question comes from Nat Schindler, of Bank of America, Merrill Lynch. your line is now open.

Nat Schindler -- Bank of America, Merrill Lynch

Yeah. Hi. You obviously have two large OTA partners who are your principle [inaudible] [audio cuts out] [00:26:30] click space revenue business. From the discussion with you in the discussion with a competitor, it's pretty clear that one of them is change their philosophy on ROI. How does that affect the other?

Stephen Kaufer -- Chief Executive Officer

Sure. This is Steve, Nat. We run an auction. There's two big players up there. With the two big players, of course, there's several brands [inaudible] [extraneous noise] [00:26:59]. When any one player bids down, by a mathematical definition, share shifts to the other players in the auction. I can't be telling you anything you don't know.

Nat Schindler -- Bank of America, Merrill Lynch

Not just, though, on share. How does it affect our behavior? Are they lowering their bids? Do they follow bids lower, or do they just simply get more share at the same bid?

Stephen Kaufer -- Chief Executive Officer

You'd have to look market by market. What am I trying to say? When a single player changes their bids, it's in aggregate. It's somewhat difficult for another partner to know exactly what they can and cannot do in response. So, you should think of it as share shift, yes. But, I wouldn't think of, necessarily, a big corresponding change on the part of the other client.

Nat Schindler -- Bank of America, Merrill Lynch

Just one other clarification. You mentioned that it's individual brands within these companies. It is the partner that has changed their ROI philosophy, are they doing across all their brands at a corporate level, or they do it on a specific brand in a specific region?

Stephen Kaufer -- Chief Executive Officer

I appreciate the question, but we really aren't able to talk about specific brands in our discussions.

Nat Schindler -- Bank of America, Merrill Lynch

Okay. Thank you.

Operator

Thank you. Our next question comes from Paul Dever of Credit Suisse. Your line is now open.

Paul Dever -- Credit Suisse Securities, LLC

Good morning, thank you for taking my question. I was hoping you could help us size the components of the non-hotel business. Obviously, there's vacation rental, restaurants, and attractions in there. Can you just give us some context for the relative size of those businesses in growth rates?

Stephen Kaufer -- Chief Executive Officer

Yes. In terms of growth rate, clearly, the faster growers are attractions and restaurants. So, in terms of growth, they are driving the growth in the segment. In terms of relative sizes, I don't want to be too specific in breaking it out because we haven't broken it out. But, attractions is the largest of the three components, with the other two smaller. That's the order of magnitude. But, I'm not going to go in more detail in breaking it out as a percentage.

Paul Dever -- Credit Suisse Securities, LLC

Okay. Thank you.

Operator

Thank you. Again, ladies and gentlemen, if you would like to ask a question at this time, please press star then one on your touchtone telephone. Our next question comes from Brian Fitzgerald at Jefferies. Your line is now open.

Brian P. Fitzgerald -- Jefferies LLC

Thanks, guys. We wanna know what type of dynamic, or if there's anything notable to call out with respect to conversion of non-hotel from hotel. Are you seeing any uplift or tailwinds in the non-hotel area where branded campaigns are running? Then, a follow up on non-hotel type of inventory. How do you feel about the breadth and depth of what you have there, you're offering there? Then, the rate at which you're adding more inventory, if you will, there?

Stephen Kaufer -- Chief Executive Officer

Thanks, Brian. This is Steve. The TV campaign is very much focused around educating folks on price comparison around hotels. Looking at a conversion within the non-hotel category from the initial brand awareness is next to impossible for us to tell. In part because those components on TripAdvisor are growing so strong all by themselves. So, we just have a lot of goodness happening in that attraction, restaurant category. In terms of non-hotel inventory trends, we continue to grow both on restaurants and attractions, in particular. Attractions, the bookable product's up 30% year on year. The overall attractions listing is growing as well. When you look back a couple years, the bookable supply is up 5X or something. The marketplace concept has really worked for us.

We continue to grow in all regions of the world. We love it. It's the classic marketplace model where as we add more to the supply match to the TripAdvisor demand that we already have, it continues to grow. I think our TripAdvisor-sourced bookings for the attraction category is, was up 100% year on year in Q3. We're just seeing really nice signs of that whole trip lifecycle coming together. You see that in the numbers in that other hotel business growth. Ernst, do you wanna add anything? I think we're good there. Thanks.

Brian P. Fitzgerald -- Jefferies LLC

Thanks, Steve.

Operator

Thank you. I am showing no further questions at this time. Now, it's my pleasure to hand the conference back over to Mr. Stephen Kaufer, Chief Executive Officer, for some closing comments or remarks.

Stephen Kaufer -- Chief Executive Officer

Alright, well, thanks everyone for joining the call. I want to thank our employees around the globe for their continued hard work. We look forward to updating everyone next quarter. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This completes today's program. You may all disconnect. Everyone, have a great day.

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